Check Employment Status for Tax Tool – What Is It? Meaning / Definition

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Check Employment Status for Tax IR35 Tool
Check Employment Status for Tax IR35 Tool

Check Employment Status for Tax (CEST)

HMRC has come with a new online tool called Check Employment Status for Tax.

This is to back up the Government’s IR35 rule changes in the public sector.

The Conservative Government came to power in 2010 saying that they would ‘look at’ IR35 again.

Contractors Group IPSE, who were the professional Contractors Group at the time, were delighted with ‘their lobbying efforts’ and rushed out a Press Release with the great news.

When they got into power they were as good as their word.

They did look at IR35 again and decided not only that they would keep it but that they would strengthen it too.

This is just the latest effort by the Government to catch more and more contractors with the IR35 tax.

Contractors Pay Less tax Than Permanent Employees

Prime Minister Theresa May and Chancellor Hammond have said that it is grossly unfair that a freelancer earning £100,000 a year pays less in tax and national insurance than a permanent employee earning £100,000 a year.

They want to fix what they see as this ‘unfair anomaly’.

No doubt the big consulting companies who advise them, and who see freelancers as rivals, are cheerleading from behind.

Contractors Decided Their Own IR35 Status

Up till April of this year, contractors decided their own IR35 status.

If they got it wrong it could cost them in back tax, interest and penalties.

However, they could take out IR35 insurance against that.

However, the Government as changed the rules, at least in the public sector only – for now.

From April 2018, the Government made the decision maker on a contractor’s IR35 status, the department hiring them.

And, if the department got it wrong, they would be liable for the missing tax.

Recruitment Agencies to Deduct Contractors’ Tax and NI

Whoever pays the contractor, normally the agency, would be responsible for deducting tax and national insurance before paying the contractors.

To help Government departments decide which contractors are inside IR35 and which contractors are outside IR35, HMRC came up with a new online tool called Check Employment Status for Tax.

Contractors would be forced to take this by the department where they worked.

Of course, this tool is only HMRC’s idea of what is inside IR35 or not.

Check Employment Status for Tax has no legal basis – and HMRC is not exactly a neutral observer.

However, Government departments use this tool as if it has the exact answer to whether a freelancer is inside IR35 or outside IR35.

Government Departments Will Decide Contractors IR35 Status

Not only have the Government decided that the hirer will be the sole arbiter of a contractor’s IR35 status but the Government department would be liable for the tax if they got it wrong.

Government departments are risk averse, as are those who run them.

So, what we are finding is that whole departments of Government, like the NHS and MoD are declaring a blanket ban on freelancers operating via limited companies.

They are insisting that they will only use contractors whose agencies will be responsible for deducting the IR35 tax or who operate through umbrella companies.

IR35 Changes Coming to Private Sector Contractors

Those of you who work in the private sector should not just sympathise.

It is almost certainly coming to a place near you.

The Government announced that they intend to roll it out in the private sector too after a consultation.

They are consulting now.

The most likely announcement date for a private sector roll out is November’s budget with an implementation date in April 2019.

Freelancers’ Group IPSE

Freelancers’ group IPSE hope that their lobbying efforts can stop this private sector roll out.

Don’t count on it though.

It’s more likely just a case of whether it gets rolled out in April 2019 or April 2020.

Take the test here – IR35 Status Test for Contractors

How did you do?

Do you think it is a fair test?

Nearly Half Contractors Don’t Pass IR35 Test

Figures so far show that 31% of contractors failed the IR35 test, 54% passed it and it couldn’t determine with any certainty whether 15% are inside IR35 or outside IR35.

You can bank on the fact that whoever hires that 15% will not allow them to operate trough personal service companies (PSCs).

So, it is effectively 54% who pass the test and 46% who don’t.

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